NCC warning over govt IT contract renegotiation

UK outsourcing firms may be affected if the government chooses to renegotiate its major IT contracts, the National Computing Centre (NCC) has said.

A total of 35 major government IT outsourcing contracts are potentially at risk of renegotiation in the coming years, technology analyst Ovum claimed last week.

The company issued the warning after the Con-Lib coalition imposed a £100 million cap on public IT contracts, seeking to cut spending and reduce the budget deficit.

Michael Dean, head of marketing at information technology membership and research organisation the NCC, said the impacts of the spending cuts "could be significant".

"If the government take a hardline approach through either non-renewal or renegotiation, outsourcers will be forced to find alternative revenue streams," he stated.

He suggested this could be difficult in a market reported to be in decline.

According to data and advisory firm TPI, the global outsourcing market is not yet bouncing back, as economic uncertainty continues to weigh on corporations around the world.

The total worth of commercial outsourcing contracts valued at £16 million or more was £11.7 billion in the second quarter of 2010, down by 13 per cent both sequentially and year-over-year.

TPI reported that the Europe, Middle East and Africa market has been particularly affected, as has the normally strong Asia/Pacific region.

"While a lot of outsourcing goes overseas, the UK industry will still be affected," Mr Dean stated.

"However, outsourcing agreements are a two-way street based on contracts and outsourcers will resort to legal defences if they are not happy with 'renegotiation'. This may result in delay or penalties due to outsourcers."